paa - financial statments final - rsm v2 clean · the border with serbia defines the northern...

Appendix 4E

Preliminary final Report Name of Entity PharmAust Limited ABN 35 094 006 023 Year Ended 30 June 2011 Previous Corresponding Reporting Period 30 June 2010 Results for Announcement to the Market

$’000 Percentage increase/(decrease) over previous corresponding period

Revenue from ordinary activities 1,596 (18%) Profit / (loss) from ordinary activities after tax attributable to members

(5,798)

1,223%

Net profit / (loss) for the period attributable to members (5,798) 1,223% Dividends (distributions) Amount per security Franked amount per security Final Dividend It is not proposed to pay Dividends Interim Dividend It is not proposed to pay Dividends Record date for determining entitlements to the dividends (if any) Not Applicable Dividends Date the dividend is payable No dividends Record date to determine entitlement to the dividend

No dividends

Amount per security -c Total dividend -c Amount per security of foreign sourced dividend or distribution

-c

Details of any dividend reinvestment plans in operation

No dividends

The last date for receipt of an election notice for participation in any dividend reinvestment plans

No dividends

Net Tangible Assets per Security Current Period Previous

corresponding period

Net tangible asset backing per ordinary security 0.4c 2.3c The 30 June 2011 financial report dated 31 August 2011 forms part of and should be read in conjunction with the Preliminary Final Report (Appendix 4E). This report is based on financial statements that have been audited. The audit report is included in the 30 June 2011 Annual Financial Report.

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ABN 35 094 006 023

Annual Report

2011

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2011 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entity

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CONTENTS Corporate Directory Directors' Report Corporate Governance Auditor’s Independence Declaration Independent Auditor’s Report Directors’ Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Shareholder Information

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CORPORATE DIRECTORY PRINCIPAL PLACE OF BUSINESS 50 Derby Road Subiaco, Western Australia 6008 Tel +61 (8) 9380 6550 Fax +61 (8) 9381 4056 www.pharmaust.com ASX CODE: PAA, PAAO REGISTERED OFFICE 50 Derby Road Subiaco, Western Australia 6008 Tel +61 (8) 9380 6550 Fax +61 (8) 9381 4056 DIRECTORS Mr Bryant Mclarty Mr Greg Cunnold (Appointed on 19 August 2011) Mr Sam Wright Mr Henry Gulev COMPANY SECRETARY Mr Sam Wright SHARE REGISTRY Computershare Investor Services Pty Limited Level 2, 45 St George’s Terrace Perth, Western Australia 6000 SOLICITORS Fairweather & Lemonis Ground Floor 1 Havelock Street West Perth, Western Australia 6005 AUDITORS RSM Bird Cameron Partners 8 St Georges Terrace Perth, Western Australia 6000 STOCK EXCHANGE Australian Securities Exchange Exchange Plaza 2 The Esplanade Perth, Western Australia 6000

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DIRECTORS’ REPORT

Your Directors present their report on the Company and the entity it controlled for the financial year ended 30 June 2011. Directors The following persons held office as directors of PharmAust Limited during the financial year and up to the date of this report: Bryant Mclarty Executive Chairman Greg Cunnold Technical Director (appointed 19 August 2011) Henry Gulev Non-Executive Director Sam Wright Non-Executive Director Directors have been in office since the start of the financial period to the date of this report unless otherwise stated. Principal Activities The principal continuing activities constituted by PharmAust Limited and the entity it controlled during the year were contract drug discovery and development and the exploration for oil and gas. Operating Results The results of the consolidated entity for the year ended 30 June 2011 was a loss, after income tax expense, of $5,797,886 (2010: loss of $438,600). Financial Position The net assets of the consolidated entity are $1,147,860 as at 30 June 2011 (2010: $5,807,239). Review of Operations PELA RESOURCES - 100% PHARMAUST LIMITED EUROPEAN HIGH GRADE PRECIOUS AND BASE METAL ADVANCED EXPLORATION INITIAL PROJECT - LUKE RIVER In February 2011 PharmAust Limited signed a binding heads of agreement to purchase all the shares in Pela Resources Pty Ltd holder of the rights to an 80% downstream interest in a European high grade precious and base metal advanced exploration project, “Luke River” located in northeast Macedonia. The project area of 29.33 km² in the Kriva Palanka district is well serviced with sealed roads, power from the national grid and an abundant water supply. The border with Serbia defines the northern margin of the concession and the border crossing into Bulgaria is within 20 kilometres of the project area to the south east. Hydrothermal vein structures have been delineated within the project area, interpreted to be related to a sub volcanic (dacite) intrusive to the north. Early June 2011 saw commencement of drilling at Luke River through one of the two drilling rigs contracted to execute the diamond drilling programme being on site and drilling. The first phase of geophysics had also progressed significantly and major access agreements and site works had been completed. Diamond drilling is being utilised in order to better determine the geometry of any mineralisation and its structural controls which combined with a ground traverse of induced polarisation and resistivity analysis should better delineate the hydrothermal vein structures known to host the precious and base metal mineralisation at Luke River. The transaction was subject to all necessary shareholder and regulatory approval, PAA completing due diligence in respect of the transaction and the parties executing formal documents. At the start of June 2011 COMPLETION OF SHARE SALE AGREEMENT was announced with the consideration for the acquisition the issue of 150,000,000 PAA shares. EPICHEM – 100% OWNED SUBSIDIARY Epichem has been delivering synthetic and medicinal chemistry services to the drug discovery and pharmaceutical industries worldwide for more than 7 years. Epichem offers a range of rare and hard to find pharmaceutical impurities, degradants and metabolites of active ingredients and excipients, particularly for OTC and generic drugs. Epichem has been at the forefront of synthesizing new and difficult to obtain standards and many of these are exclusive to Epichem and not available elsewhere. This range is continually expanding in response to customer requests and developments in the industry. Epichem also excels in custom synthesis and contract drug discovery, boasting a highly skilled team of scientists, most with a PhD and industry experience. This valuable investment in people allows Epichem to lead drug discovery programs, perform custom synthesis, conduct optimisation and method development for scale-up and engage in high-level problem solving.

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DIRECTORS' REPORT (Cont.) Epichem provides synthetic & medicinal chemistry support to the Drugs for Neglected Diseases initiative (DNDi) drug discovery projects through a contract which was due to finish on 30 June 2011. DNDi is a not-for-profit product development partnership working to research and develop new treatments for neglected diseases, in particular human African trypanosomiasis, leishmaniasis, Chagas disease, malaria, paediatric HIV, and specific helminth-related infections. During the year Epichem was awarded an 18 month extension to its current contract with DNDi. along with signing an exclusive distributor agreement with a leading Japanese Life Sciences supplier company, AR Brown, for sales to Japan, Taiwan, China and South Korea. Headquartered in Tokyo, AR Brown is one of Japan’s largest distributors in the chemical, pharmaceutical and biotechnology industries managing large and sophisticated networks of supplier partnerships worldwide. Epichem is globally competitive with clients in over 20 countries and is rapidly expanding its reach. Epichem wins both the Australian and Western Australian Exporter of the Year awards In 2010 Sponsored by the Department of Innovation, Industry, Science and Research and the Department of Commerce respectively Epichem was honoured for their achievements in international business by governments both State and Federal. This is high level of recognition of Epichem’s work from its small but highly effective team. The Australian Export Awards is a national program that recognises and honours exporters who have achieved sustainable export growth through innovation and commitment. The Australian Trade Commission (Austrade) and the Australian Chamber of Commerce and Industry (ACCI) partner the presentation of this national program now in its 48th year which historically is one of the longest running business award programs in Australia. The winners are role models for the businesses of Australia. Epichem is able to export to the world's most demanding markets including Europe, the USA, Japan and India. LAMBOUKA OIL & GAS PROSPECT PharmAust entered into an agreement in 2010 with Audax Resources Limited (ASX: ADX) to acquire a working interest in the Lambouka prospect whereby PharmAust would be entitled to earn a 10% interest in the Lambouka prospect area by paying a “promoted” proportion of the costs of the drilling of an exploration well. Lambouka lies in 400m water depth and straddles the Italian and Tunisian international boundary and was one of the largest undrilled structures in the Mediterranean. The Lambouka prospect was drilled to its planned total depth and an initial suite of wire line logs were run in the well. Due to deterioration of the wellbore, the partners decided against running additional logs and further attempts to flow test the well. On 8th September, the joint venture partners agreed to suspend the Lambouka -1 discovery in a manner suitable for the future re-entry of the well. The comprehensive Lambouka dataset was and continues to be evaluated in further detail with ADX stating it planned to re enter Lambouka 1 then sidetrack and test with a specifically designed reservoir flow test at some time in the future. CORPORATE During 2010 / 2011 PharmAust entered into agreements to raise approximately $611,300 and $600,000 from the issue of 38,206,303 ordinary fully paid shares in the Company to be issued at 1.6 cents per share and 24,000,000 shares at 2.5 cents per share with one free attaching listed option (PAAO) exercisable at ten cents and expiry 30th March 2012 respectively. The placements were to non-related parties utilising PAA's 15% placement capacity and did not require shareholder approval.

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DIRECTORS' REPORT (Cont.) BALANCE DAY EVENTS SUBSEQUENT EVENTS On 12 July 2011, shareholders approved a series of resolutions to enable the Company to proceed to complete the conditions precedent and subsequently complete the acquisition of Pela Resources Pty Ltd. The consideration for the acquisition was 150,000,000 shares in the Company. Greg Cunnold joins the PAA Board as Technical Director in August 2011 Mr Cunnold is a geologist with over 18 years experience in the international exploration industry. His expertise extends from project definition and acquisition, through grass roots exploration and delineation, to resource definition and bankable feasibility. During his career Greg has worked on a range of precious metal, base metal and industrial mineral projects throughout the world. Greg was the first geologist to Romania for Gabriel Resources, where he resided for 5 years working as project manager on the Rosia Montana gold project, culminating in the completion of a BFS on the 14 million ounce gold deposit defined there. More recently Greg was the Exploration Manager for Reward Minerals, during which time the company discovered and delineated Australia's first potash resource of over 20 million tonnes of potassium sulphate at Lake Disappointment. Greg holds a Bachelor of Science (Geology) degree from the University of Western Australia. He is also a member of the Australian Institute of Geoscientists (MAIG) and the Australian Institute of Mining and Metallurgy. Results of General Meeting On July 12 2011 a General Meeting of Members was held at the Macedonian Community Centre of with all resolutions passed on a show of hands. Completion of the Pela Transaction and Loan Facility The Pela Transaction was completed on the 19th August 2011 and the market was advised. Completion was conditional upon the satisfaction of various conditions including PAA shareholder approvals (which were received on 8th July 2011), completion of due diligence and PAA becoming entitled to acquire 100% of Pela as a result of the Pela shareholders accepting offers to be made to them by PAA. As previously approved by shareholders, the 4 vendors were issued with 150,000,000 ordinary shares which are subject to 12 months ASX escrow. PAA also entered into a loan facility with Silktree Investments Pty Ltd by way of a $300,000 cash advance. The funds will be used to primarily fund exploration and drilling on Luke River. The loan is unsecured and the company incurs interest of 10% payable monthly. Dividends Since the end of the financial year, no dividend has been paid, declared or recommended. Significant Changes in State of Affairs A review of events during the reporting period can be found in the review of operations.

Future Developments In the opinion of the Directors disclosure of information regarding likely developments in the Company’s operations and the expected results of those operations in subsequent financial years could prejudice the Company’s interests. Accordingly, this information has not been included in this report.

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DIRECTORS' REPORT (Cont.)

Information on Directors Mr. Bryant Mclarty – Executive Director & Chairman Experience

Mr Mclarty has extensive managerial experience and a practical working knowledge of the securities industry in Australia and overseas. His role at PharmAust Limited includes day to day management, strategic planning, fundraising and the development and promotion of the company’s business along with the introduction of new projects. Mr Mclarty is a founding director of PharmAust. Mr Mclarty is also currently a Non Executive Director of Aviation Plc which is listed on the London Stock Exchange. Aviation is a leasing company with a fleet of aircraft, worth in excess of US$250m, currently on long term commercial leases to a range of operators in Europe, the US and Australia. AVAP just delivered 2 of a possible 18 planes to Virgin Australia.

Interests in Shares and Options

Mr Mclarty holds 7,018,119 ordinary shares and 10,512,024 listed options in PharmAust Limited.

Other Current Directorships (ASX Listed Companies) Previous Directorships (last 3 years) ASX Listed Companies

Nil Nil

Mr. Greg Cunnold – Non-Executive Technical Director Qualifications B.Sc (Geol), MAIG, MAusIMM

Experience

Mr Greg Cunnold is a geologist with over 18 years experience in the international exploration industry. His expertise extends from project definition and acquisition, through grass roots exploration and delineation, to resource definition and bankable feasibility. During his career Greg has worked on a range of precious metal, base metal and industrial mineral projects throughout the world. Greg was the first geologist to Romania for Gabriel Resources, where he resided for 5 years working as project manager on the Rosia Montana gold project, culminating in the completion of a BFS on the 14 million ounce gold deposit defined there. More recently Greg was the Exploration Manager for Reward Minerals, during which time the company discovered and delineated Australia's first potash resource of over 20 million tonnes of potassium sulphate at Lake Disappointment. Greg holds a Bachelor of Science (Geology) degree from the University of Western Australia. He is also a member of the Australian Institute of Geoscientists (MAIG) and the Australian Institute of Mining and Metallurgy


Mr Cunnold holds 37,500,000 ordinary shares in PharmAust Limited.


Nil Nil

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DIRECTORS' REPORT (Cont.) Mr. Sam Wright – Non-Executive Director & Company Secretary Qualifications DipAcc, AFin, ACIS

Experience

Sam Wright is experienced in the administration of ASX listed companies, corporate governance and corporate finance. He joined the Company as the Financial Controller in September 2006, was appointed as the Company Secretary in August 2007, and was appointed as a Director in October 2008. Mr Wright has over ten years experience in the pharmaceutical, biotech and healthcare industry and a member of the Australian Institute of Company Directors, the Financial Services Institute of Australasia, and the Chartered Secretaries of Australia. Mr Wright is currently a Non-Executive Director and Company Secretary of ASX listed companies, Buxton Resources Limited, PharmAust Limited and Structural Monitoring Systems plc. He is also Company Secretary for ASX listed company, Cove Resources Limited. Mr Wright has also filled the role of Director and Company Secretary with a number of unlisted companies. He is the principal of Perth-based corporate advisory firm Straight Lines Consultancy, specialising in the provision of corporate services to public companies.

Interests in Shares and Options Other Current Directorships (ASX Listed Companies) Previous Directorships (last 3 years) ASX Listed Companies

Mr Wright holds 2,000,000 ordinary shares and 6,000,000 listed options in PharmAust Limited. Buxton Resources Limited (ASX: BUX) and Structural Monitoring Systems plc (ASX: SMN). Nil

Mr. Henry Gulev – Non-Executive Director Qualifications B.Pharm M.P.S

Experience

A community pharmacist for more than 20 years and state board member for Chemmart at Symbion Health Limited for more than 10 years. Mr Gulev has a wealth of experience, commercial acumen and keen interest in the development of pharmaceuticals and inception of new products. He is the owner of the highly innovative and successful The Downs Pharmacy Wembley Downs and has been a community pharmacist since graduating from the WA Institute of Technology (now Curtin University of Technology) in 1980.


Nil


Nil Nil

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Meetings of Directors The number of meetings of the Company's directors held during the year ended 30 June 2011, and the number of meetings attended by each director was: Meetings of Directors Directors

Eligible to Participate

Number Attended

B Mclarty 5 5S Wright 5 5H Gulev 5 5 Indemnification and Insurance of Directors and Officers During the year, the Company did carry Directors and Officer Indemnity insurance. The Company’s Constitution provides that except as may be prohibited by Sections 199A and 199B of the Corporations Act every Officer, auditor or agent of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as Officer, auditor or agent of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings whether civil or criminal. Share Options The details of unissued ordinary shares under option at the date of this report are as follows:

Number Exercise Price Expiry Date

Quoted 270,457,060 10 cents 31 March 2012 During the year, no options were exercised. There have been no further options exercised since the end of the financial year to the date of this report. Environmental Regulation The Company is subject to a range of environmental regulation. During the year, the Company met all reporting requirements under any relevant legislation. There were no incidents which required reporting. Proceedings on Behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of these proceedings. Non-audit Services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and the consolidated entity are important. Details of the amounts paid or payable to the auditor RSM Bird Cameron Partners non-audit services provided during the year are set out below.

The Board of Directors has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 because none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards. Details of the amount paid or payable to the auditor of PharmAust Limited in relation to the provision on non-audit services are set out below:

$ Tax compliance services

19,944

Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included within these financial statements.

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Remuneration Report (Audited)

This report details the nature and amount of remuneration for each director and executive of PharmAust Limited. Remuneration Policy The remuneration of directors and executives of PharmAust Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Company’s financial results. The Board of PharmAust Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the Company, as well as create goal congruence between directors, executives and shareholders. All executives receive a base salary (which is based on factors such as length of service and experience) and superannuation whilst some executives receive fringe benefits. The Board reviews executive packages periodically by reference to the Company’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The performance of executives is measured against criteria agreed regularly with each executive and is based on factors including the forecast growth of profits and shareholders’ value. The remuneration is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. The goal of the remuneration structures it to align the remuneration packages of the executives with the Company’s performance and specifically the Company’s earnings and the consequences of the Company’s performance on shareholder wealth including dividends, returns of capital and capital appreciation. The executive directors and executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Individuals, however, have the option to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to directors and executives is valued at the cost to the Company and expensed. Any shares given to directors and executives will be valued as the difference between the market price of those shares and the amount paid by the director or executive. Any options granted will be valued by an independent expert using the Black-Scholes, Binomial or any other methodologies that the independent expert deems appropriate. The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board (excluding the relevant director) determines payments to the directors and reviews their remuneration regularly, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Company. Service agreements Remuneration of Bryant Mclarty (Executive Chairman - PharmAust Limited) Term of the agreement – permanent and no specific term. Base salary of $180,000 per year plus superannuation of 9% of base salary. Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to nine (9) months base salary and superannuation. Remuneration of Sam Wright (Non-Executive director and company secretary – PharmAust Limited) Term of the agreement – permanent and no specific term. Consultancy fee of $7,500 plus GST per month, payable in arrears. Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to six (6) months consultancy fee. Remuneration of Henry Gulev (Non-Executive Director – PharmAust Limited) Consultancy fee of $30,000 per annum. Remuneration of Wayne Best (Managing Director – Epichem Pty Ltd) Term of the agreement – permanent with a 3 year term. Base salary of $137,527 per year plus superannuation of 9% of base salary Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to three (3) months base salary and superannuation. Remuneration of John Horton, and Colette Sims (Directors – Epichem Pty Ltd) Consultancy fee of $10,000 per annum for John Horton as Chairman and $5,000 per annum for Colette Sims.

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Remuneration Report (Audited) Remuneration of Directors and Specified Executives

Details of the nature and amount of each element of remuneration of each Director of the Company for the financial year are as follows: 2011 Short-term Post-

employment Share based

payment

Salary & Fees

$

Other

$

Superannuation

$

Options

$

Termination benefits

$

Total

$

% Performance related

$

Directors Bryant Mclarty 180,000 - 16,200 - - 196,200 - Sam Wright 90,000 - - - - 90,000 - Henry Gulev 30,000 - - - - 30,000 - Executives

Wayne Best 137,527 - 12,377 - - 149,904 - John Horton 10,000 - - - - 10,000 - Colette Sims 5,000 - - - - 5,000 - 452,527 - 28,577 - - 481,104 - 2010 Short-term Post-

employment Share based

payment

Salary & Fees

$

Other

$

Superannuation

$

Options

$

Termination benefits

$

Total

$

% Performance related

$

Directors Bryant Mclarty 155,000 - 27,675 - - 182,675 - Sam Wright 81,000 - - - - 81,000 - Henry Gulev 26,250 - - - - 26,250 - Executives Wayne Best 135,923 - 12,233 - - 148,156 - John Horton 12,500 - - - - 12,500 - Colette Sims 5,000 - - - - 5,000 - Valerie Alder (#) 6,250 - - - - 6,250 -

421,923 - 39,908 - - 461,831 - (#) – deceased 20 August 2010

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Remuneration Report (Audited) Options granted as part of remuneration There were no options issued as part of director remuneration for the year ended 30 June 2011 and 30 June 2010. No options expired during the year. Shares Issued on Exercise of Compensation Options No options were exercised last financial year, this financial year or since.

Signed in accordance with the Board of Directors. BRYANT MCLARTY Director Signed at Perth, Western Australia this 30th day of August 2011

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Annual Report Disclosure on Corporate Governance PharmAust Limited is a drug discovery and development company. The Company has established, and continues to refine and improve procedures to ensure a culture of good corporate governance exists and is respected across the consolidated entity. Foundations for Management and Oversight - Board of Directors/Executive Management The Board consists of Executive Chairman Bryant Mclarty, Non-Executive Technical Director Greg Cunnold, Non-Executive Director Sam Wright and Non-Executive Director Henry Gulev. The Company’s Constitution requires that one third of the members of the Board retire by rotation each year but are eligible for re-election. Any new director appointed holds office only until the next general meeting and is then eligible for re-election. The Board will ensure that any such person to be appointed as a director possesses an appropriate level of qualifications, expertise and experience. Due to its size, the full Board fulfils the duties of a Nomination Committee governed by the Nomination Committee Charter. The Board’s primary role is the optimisation of Company performance and protection and enhancement of shareholder value. Due care is taken to ensure the directors are aware of their responsibilities, obligations and corporate expectations as directors of PharmAust Limited.

The Board has reserved the following matter; oversight of the company, including its control and accountability systems; appointing and removing the chief executive officer (or equivalent); ratifying the appointment and, where appropriate, the removal of the chief financial officer (or equivalent) and the

company secretary; input into and final approval of management’s development of corporate strategy and performance objectives; reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct, and legal

compliance; monitoring senior management’s performance and implementation of strategy, and ensuring appropriate resources are

available; approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and

divestitures; approving and monitoring financial and other reporting. Board Structure The Board of Directors comprises one Executive Director, Mr Bryant Mclarty (Chairman), and three Non-Executive Directors, Mr Greg Cunnold, Mr Sam Wright and Mr Henry Gulev. Messrs Wright and Gulev are considered by the Board of Directors as independent for the purposes of the Australian Stock Exchange Corporate Governance Council “Principles of Good Corporate Governance and Best Practice Recommendations”. As independent directors if Messrs Wright & Gulev considers it necessary they can take independent professional advice at the Company’s expense. The Policy on the selection and appointment of new directors was formalised and has been adopted by the Board and is displayed on the Company’s website. The period in office of each director is discussed in the Directors Report within this annual report. Promote Ethical and Reasonable Decision Making

The Company has adopted the appropriate codes of conduct in accordance with the recommendations of ASX Corporate Governance Council. Ethical Standards PharmAust Limited is committed to the highest standards of ethical business conduct. As part of that commitment, PharmAust Limited has established a Code of Conduct to guide executives, management and staff in carrying out their duties and responsibilities and guide directors and executives as to the practices necessary to maintain confidence in the Company’s integrity, and the responsibilities and accountability of individuals for reporting and investigating reports of unethical practices. The Code is subject to ongoing review to ensure that PharmAust Limited’s standards of behaviour and corporate culture reflect best practice in corporate governance. The Code is based on the key principles identified by the Australian Institute of Company Directors. In addition, the Board has guidelines dealing with disclosure of interests by directors in participating and voting at Board meetings where any such interests are discussed. In accordance with the Corporations Act, any director with a material personal interest in a matter being considered by the Board must not be present when the matter is being considered, and may not vote on the matter. The Board has adopted a policy to guide directors, officers and employees with regard to trading in the Company’s securities. A formal policy has been adopted designed to ensure compliance with the provisions of the Corporations Act by executive staff who may be in possession of sensitive information concerning the Company’s affairs.

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Annual Report Disclosure on Corporate Governance (Cont.) Disclosure The Company has a written policy designed to ensure compliance with ASX Listing Rules and all other regulatory requirements for disclosures. Additionally the Company has adopted a policy designed to ensure procedures to implement the policy are suitable and effective. Identification and Management of Risk The Board has adopted a formal Risk Management Strategy which along with the Board’s collective experience should assist in enabling accurate identification of the principal risks which may affect the Company’s business. Identifying key operational risks and their management are recurring items for deliberation at Board meetings. The Company’s operational team is responsible for mitigation and management of all risks in relation to the Company’s operations. Enhance Performance - Remuneration Fairly & Responsibly The essence of the Company’s current remuneration practices is to competitively set remuneration, including incentives to executive directors and senior management, to motivate key executives to pursue the long term growth and success of the Company within an appropriate control framework and to demonstrate a clear relationship between corporate and key executive performance and remuneration. Further details of directors’ remuneration during the financial year are set out in the Company’s Financial Report and Remuneration Report. The full Board acting to fulfil the duties of the remuneration committee sets, in accordance with the Remuneration Policy, the terms and conditions for the chief executive officer and other senior executives. The full Board reviews executive packages regularly by reference to company performance, executive performance, and comparable information from industry sectors, other listed companies and independent advice. The policy is designed to attract the highest calibre executives and reward them for performance which results in long-term growth in shareholder value. Executives, other than directors, are also entitled to participate in the employee share and option arrangements. Non-executive directors are paid by means of fees only and do not participate in schemes designed for remuneration of executives. Non-executive directors do not receive options or bonus payments and are not provided with retirement benefits other than statutory superannuation. The amount of remuneration for all key management personnel, including all monetary and non-monetary components, is detailed in the financial report. All remuneration paid to executives is valued at the cost to the Company and expensed. The payment of bonuses, share options and other incentive payments are reviewed by the Board as part of the review of executive remuneration. Interest of Stakeholders The formal Code of Conduct designed to promote ethical and responsible decision making sets the framework for dealing with all stakeholders in the Company. It is designed to ensure that directors have regard for the interests of all stakeholders of the Company. Explanation for Departure from Best Practice Recommendations The Company has complied with each of the Ten Essential Corporate Governance principles and the corresponding Best Practice Recommendations as published by ASX Corporate Governance Council (“ASX Principles and Recommendations”), other than in relation to the matters specified on the following page. The Board sets out below its “if not why not” report in relation to those matters of corporate governance where the Company’s practices depart from the Recommendations

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Annual Report Disclosure on Corporate Governance (Cont.)

Recommendation PharmAust Limited current practice 1.1 Companies should establish the functions reserved for the

board and those delegated to senior executives and disclose those functions.

Satisfied. Board Charter is available at www.pharmaust.com in the Corporate Governance Statement.

1.2 Companies should disclose the process for evaluating the performance of senior executives.

Satisfied. Board Performance Evaluation Policy is available at www.pharmaust.com in the Corporate Governance Statement.

2.1 A majority of the board should be independent directors. Satisfied.

2.2 The chair should be an independent director.

Not Satisfied. Given the size and nature of the Company, Mr Mclarty is considered the most appropriate Director to act as Chairman.

2.3 The roles of chair and Chief Executive Officer should not be exercised by the same individual.

Not Satisfied. Given the size and nature of the Company, Mr Mclarty is considered the most appropriate Director to act as Chairman and fulfil the functions of Chief Executive Officer in his capacity as Executive Chairman.

2.4 The board should establish a nomination committee. Not satisfied. The Board consider that given the current size of the Board (4), this function is efficiently achieved with full Board participation. Accordingly, the Board has not established a nomination committee.

2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual directors.

Satisfied. Board Performance Evaluation Policy is available at www.pharmaust.com in the Corporate Governance Statement.

3.1 Companies should disclose a code of conduct and disclose the code or a summary of the code as to: The practices necessary to maintain confidence in

the company’s integrity The practices necessary to take into account their

legal obligations and the reasonable expectations of their stakeholders

The responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

Satisfied. The Code of conduct is available at www.pharmaust.com in the Corporate Governance Statement.

3.2 Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy.

Satisfied. The Trading Policy is available at www.pharmaust.com in the Corporate Governance statement.

4.1 The board should establish an audit committee.

Not satisfied. The Board consider that given the current size of the Board (3), this function is efficiently achieved with full Board participation. Accordingly, the Board has not established an audit committee.

4.2 The board committee should be structured so that it: Consists only of non-executive directors Consists of a majority of independent directors Is chaired by an independent chair, who is not chair

of the board Has at least three members

Not satisfied. The Company has adopted a policy which includes Executive Directors as audit committee members.

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4.3 The audit committee should have a formal charter. Satisfied.

Audit Committee charter is available at www.pharmaust.com in the Corporate Governance statement.

5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at senior executive level for that compliance and disclose those policies or a summary of those policies.

Satisfied. Continuous disclosure policy is available at www.pharmaust.com in the Corporate Governance statement.

6.1 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of their policy.

Satisfied. Shareholders communication strategy is available at www.pharmaust.com in the Corporate Governance statement.

7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.

Satisfied. Risk management program is available at www.pharmaust.com in the Corporate Governance statement.

7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.

Satisfied. The Board, including the Executive Chairman, routinely consider risk management matters.

7.3 The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

Satisfied. The Board has received a section 295A declaration pursuant to the 2011 financial period.

8.1 The board should establish a remuneration committee. Not Satisfied. The Board consider that given the current size of the Board, this function is efficiently achieved with full Board participation. Accordingly, the Board has not established a remuneration committee.

8.2 Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives.

The structure of Directors’ remuneration is disclosed in the remuneration report of the annual report.

Further information about the Company’s corporate governance practices is set out on the Company’s web site at www.pharmaust.com

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RSM Bird Cameron Partners

8 St Georges Terrace Perth WA 6000

GPO Box R1253 Perth WA 6844

T +61 8 9261 9100 F +61 8 9261 9111

www.rsmi.com.au

Liability limited by a scheme approved under Professional Standards Legislation

Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 185 036

RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms. RSM International is the name given to a network of independent accounting and consulting firms each of which practices in its own right. RSM International does not exist in any jurisdiction as a separate legal entity.

AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the audit of the financial report of PharmAust Limited for the year ended 30 June 2011, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

RSM BIRD CAMERON PARTNERS

Chartered Accountants

Perth, WA TUTU PHONG

Dated: 30 August 2011 Partner

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RSM Bird Cameron Partners

8 St George’s Terrace Perth WA 6000

GPO Box R1253 Perth WA 6844

T +61 8 9261 9100 F +61 8 9261 9101

www.rsmi.com.au

Liability limited by a scheme approved under Professional Standards Legislation

Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 185 036

RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms. RSM International is the name given to a network of independent accounting and consulting firms each of which practices in its own right. RSM International does not exist in any jurisdiction as a separate legal entity.

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF

PHARMAUST LIMITED

Report on the Financial Report

We have audited the accompanying financial report of PharmAust Limited, which comprises the consolidated statement of financial position as at 30 June 2011, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit

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Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of PharmAust Limited, would be in the same terms if given to the directors as at the time of this auditor's report. Opinion In our opinion: (a) the financial report of PharmAust Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and

(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report

We have audited the Remuneration Report contained within the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of PharmAust Limited for the year ended 30 June 2011 complies with section 300A of the Corporations Act 2001.

RSM BIRD CAMERON PARTNERS

Chartered Accountants

Perth, WA TUTU PHONG

Dated: 30 August 2011 Partner

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DIRECTORS’ DECLARATION

The directors of the company declare that:

1. the financial statements and notes are in accordance with the Corporations Act 2001 and:

a. comply with Australian Accounting Standards, which, as stated in Note 1 to the financial statements,constitutes explicit and unreserved compliance with International Financial Reporting Standards; and

b. give a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of itsperformance for the year ended on that date;

2. the Chief Executive Officer and Chief Finance Officer have each declared that:

a. the financial records of the company for the financial year have been properly maintained inaccordance with s286 of the Corporations Act 2001;

b. the financial statements and notes for the financial year comply with Australian Accounting Standards; and

c. the financial statements and notes for the financial year give a true and fair view; and

3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debtsas and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors. Bryant Mclarty Director Signed at Perth, Western Australia this 30th day of August 2011

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STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2011 CONSOLIDATED

NOTE 2011

$ 2010

$

Revenue 2 1,551,673 1,629,715 Other income 2 44,425 311,626 1,596,098 1,941,341 Raw materials and consumables used (142,309) (209,462) Employee benefits expense (1,475,096) (1,442,231) Depreciation expense (65,178) (62,184) Finance costs (4,369) (105,334) Administration expenses (704,834) (560,730) Impairment of exploration expenditure (4,998,481) - Other expenses (3,717) - Loss before income tax expense

(5,797,886) (438,600)

Income tax expense 3a - - Loss for the year

(5,797,886) (438,600)

Other comprehensive income Revaluation of land and buildings - (55,020) Income tax relating to components of other comprehensive income

-

-

Total comprehensive income for the year

- (55,020)

Total comprehensive loss for the year

(5,797,886) (493,620)

Basic earnings per share (cents per share) 16 (2.05) (0.17) Diluted earnings per share (cents per share) 16 (2.05) (0.17)

The accompanying notes form part of these financial statements.

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STATEMENT OF FINANCIAL POSITION

As at 30 June 2011

CONSOLIDATED

NOTE 2011

$ 2010

$

CURRENT ASSETS

Cash and cash equivalents 4 86,160 2,752,539 Trade and other receivables 5a 271,798 236,180 Other current assets 6 740 1,034,462 Financial assets 7 9,000 131,450

TOTAL CURRENT ASSETS 367,698 4,154,631 NON-CURRENT ASSETS

Trade and other receivables 5a 478,740 - Exploration and evaluation expenditure 8 50,000 2,064,362 Plant and equipment 9 554,368 608,629

TOTAL NON-CURRENT ASSETS 1,083,108 2,672,991 TOTAL ASSETS 1,450,806 6,827,622 CURRENT LIABILITIES

Trade and other payables 10 187,558 863,596 Short-term borrowings 11 30,609 28,123 Short-term provisions 12 79,421 92,698

TOTAL CURRENT LIABILITIES 297,588 984,417 NON-CURRENT LIABILITIES Long-term borrowings 11 5,358 35,966 TOTAL NON-CURRENT LIABILITIES 5,358 35,966 TOTAL LIABILITIES 302,946 1,020,383 NET ASSETS

1,147,860 5,807,239

EQUITY

Issued capital 13 29,003,570 27,865,063 Reserves 14 622,090 622,090 Accumulated losses (28,477,800) (22,679,914)

TOTAL EQUITY

1,147,860

5,807,239


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STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2011

Issued Capital Accumulated Losses

Options Reserve

Asset Revaluation

Reserve

Total Equity

$ $ $ $ $

As at 1 July 2009 27,864,982 (22,498,989) 177,923 312,695 5,856,611 Loss for the year - (438,600) - - (438,600) Revaluation of land and buildings

-

-

-

(55,020)

(55,020)

Total comprehensive loss

-

(438,600)

-

(55,020)

(493,620)

Transfer upon disposal of land and buildings

-

257,675

-

(257,675)

-

Shares issued (net) 81 - - - 81 Options issued (net) - - 444,167 - 444,167 As at 30 June 2010

27,865,063

(22,679,914)

622,090

-

5,807,239

As at 1 July 2010 27,865,063 (22,679,914) 622,090 - 5,807,239 Loss for the year

-

(5,797,886)

-

-

(5,797,886)

Total comprehensive Ioss

-

-

-

-

(5,797,886)

Shares issued (net)

1,138,507

-

-

-

1,138,507

As at 30 June 2011

29,003,570

(28,477,800)

622,090

-

1,147,860


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STATEMENT OF CASH FLOWS For the year ended 30 June 2011

CONSOLIDATED

NOTE 2011

$ 2010

$

Cash Flows From Operating Activities

Receipts from customers 1,532,768 1,767,189 Payments to suppliers and employees (3,014,361) (2,304,377) Dividends received 4,604 3,026 Interest received 33,980 164,766 Interest and other costs of finance (4,369) (105,334)

Net cash used in operating activities 20b (1,447,378) (474,730) Cash Flows From Investing Activities Exploration and evaluation expenditure (1,968,020) (2,374,676)

Payments for plant and equipment (10,917) (42,879) Proceeds from sale of land and buildings - 2,659,980 Proceeds from sale of financial assets 128,291 181,372 Payments for financial assets - (129,120)

Net cash (used in) / provided by investing activities (1,850,646) 294,677 Cash Flows From Financing Activities

Proceeds from share and option issues (net) 1,138,507 444,248 Advance to related entity Proceeds from borrowings

(478,740) - - 86,831

Repayment of borrowing (28,122) (1,398,350) Net cash provided by / (used in) financing activities 631,645 (867,721) Net (decrease) in cash held (2,666,379) (1,047,774) Cash at the beginning of the financial year

2,752,539 3,800,313

Cash at the end of the financial year

20a 86,160 2,752,539

The accompanying notes form an integral part of these financial statements.

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NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2011

These consolidated financial statements and notes represent those of PharmAust Limited and Controlled Entities (the “consolidated entity” or “group”). The separate financial statements of the parent entity, PharmAust Limited, have not been presented within this financial report as permitted by the Corporations Act 2001.

1 SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Australian Accounting Standards set out accounting polices that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in preparation of this financial report are presented below and have been consistently applied unless otherwise stated. The financial report has been prepared on an accrual basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The financial report was authorised for issue on 30 August 2011 by the Board of Directors.

Going concern

The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business.

As disclosed in the financial statements, the consolidated entity incurred a loss of $5,797,886 and had net cash outflows from operating activities of $1,447,378 for the year ended 30 June 2011. The company incurred a loss of $5,669,049 for the year ended 30 June 2011.

The Directors believe that it is reasonably foreseeable that the company and consolidated entity will continue as going concerns and that it is appropriate to adopt the going concern basis in the preparation of the financial report after consideration of the following factors:

Ability of the company to issue additional shares under the Corporations Act 2001; The potential to sell interests in exploration and evaluation assets for cash or for assets readily convertible to cash;

and Ability to further reduce operational cost levels.

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1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (b) Principles of Consolidation

A controlled entity is any entity PharmAust Limited has the power to control the financial and operating policies so as to obtain benefits from its activities. All controlled entities have a June financial year-end.

All inter-company balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the consolidated entity during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased.

(c) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense

(income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

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1 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

(d) Plant and Equipment

Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all plant and is depreciated on a straight line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Plant and equipment 2.5-33% The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income.

(e) Exploration and Development Expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. F

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1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (e) Exploration and Development Expenditure (Cont.)

Costs of site restoration, if required, are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly, the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site.

(f) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

(g) Financial Instruments

Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Company commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Finance instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss. The Company does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments.

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(g) Financial Instruments (Cont.)

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost.

Loans and receivables are included in current assets, where they are expected to mature within 12 months afterthe end of the reporting period.

(ii) Financial assets at fair value through profit or loss

Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose ofshort-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management orinvestment strategy. Such assets are subsequently measured at fair value with changes in carrying value beingincluded in profit or loss.

(iii) Financial liabilities

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Impairment

At the end of each reporting period, the directors assesses whether there is objective evidence that a financial instrumenthas been impaired. Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associatedwith the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

(h) Foreign Currency Transactions and Balances

The functional currency of each of the entities in the consolidated entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity; otherwise the exchange difference is recognised in the statement of comprehensive income. F

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1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (i) Impairment of Assets

At the end of each reporting period, the directors assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Accounting Standard. Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Accounting Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(j) Investments in Associates

Investments in associate companies are recognised in the financial statements by applying the equity method of accounting.

(k) Employee Benefits

Provision is made for the consolidated entity’s liability for employee benefits arising from services rendered by employees to reporting date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

(l) Provisions

Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period.

(m) Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

(n) Trade and other receivables

Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the consolidated entity will not be able to collect the debts. Bad debts are written off when identified.

(o) Revenue

Revenue from the sale of goods is recognised upon delivery of goods to the customer.

Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

All revenue is stated net of the amount of goods and services tax (GST).

(p) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

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(q) Share-based payment transactions

The Company provides benefits to directors of the Company in the form of share-based payments, whereby directors render services in exchange for shares or rights over shares (equity-settled transactions).

When provided, the cost of these equity-settled transactions with directors is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an independent external valuer using an option pricing valuation model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of PharmAust Limited (market conditions) if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Company’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The statement of comprehensive income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

(r) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(s) Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the Company, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

(s) Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

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Critical Accounting Estimates and Judgements

Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Equally, the Company continually employs judgement in the application of its accounting policies. Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions. Those which may materially affect the carrying amounts of assets and liabilities reported in future periods are discussed below.

(i) Impairment of non-financial assets

The Company assesses impairment on all assets at each reporting date by evaluating conditions specific to the Company and to the particular asset that may lead to impairment. These include technology and economic environments. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves value-in-use calculations, which incorporate a number of key estimates and assumptions.

(ii) Estimation of useful lives of assets

The estimation of useful lives of assets has been based on historical experience. Adjustments to useful lives are made when considered necessary.

(iii) Impairment of capitalised exploration and evaluation expenditure

The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Company decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of proved and probable mineral reserves, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made.

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CONSOLIDATED 2011

$ 2010

$

2 REVENUE

Sales 1,551,673 1,629,715 OTHER INCOME Interest received 33,980 178,226 Gain on revaluation of financial assets held for trading 4,550 47,000 Rental income - 14,000 Gain on sale of financial assets held for trading 1,291 58,251 Dividend income 3,800 3,026 Other revenue 804 11,123

44,425 311,626

3 INCOME TAX EXPENSE

3a No income tax is payable as a tax loss has been incurred for income tax purposes.

Loss before income tax (5,797,886) (438,600) Prima facie tax benefit at 30% (2010:30%) (1,739,366) (131,580)

Tax effect of: - Other non-allowable items 19,642 101,197 - Deferred tax asset not brought to account (1,719,724) (30,383)

- -

3b Deferred tax asset The potential deferred tax assets have not been recognised in the statement of financial position because their recovery is

not considered probable. - Tax losses at 30% tax rate (not recognised)

5,654,890

5,388,632

- Temporary differences at 30% tax rate (not recognised) 1,492,750 39,284 7,147,640 5,427,916

PharmAust Limited and its wholly-owned Australian subsidiary have formed an income tax consolidated group under the Tax Consolidation Regime. PharmAust Limited is responsible for recognising the current and deferred tax assets and liabilities for the tax consolidated group. The tax consolidated group has entered a tax sharing agreement whereby each company in the consolidated entity contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group.

4 CASH AND CASH EQUIVALENTS

Cash at bank 86,160 2,752,539

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CONSOLIDATED

2011

$ 2010

$

5 TRADE AND OTHER RECEIVABLES

5a CURRENT

Trade receivables 255,085 221,139 Provision for impairment (3,918) - Other receivables 20,631 15,041 271,798 236,180

Trade receivables: Payment terms are 30 days from the date of recognition.

NON CURRENT

Other receivables 478,740 -

5b Provision for impairment of receivables Current trade and term receivables are non-interest bearing loans and generally on 30-day terms. Non-current trade and term receivables are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. These amounts have been included in the other expenses item. Movement in the provision for impairment of receivables is as follows:

2011

Opening Balance

Charge for the Year

Amounts Written Off

Closing Balance

01/07/2010 30/06/2011

$ $ $ $

Consolidated

(i) Current trade receivables - 3,918 - 3,918

- 3,918 - 3,918

5c Past due but not impaired

As of 30 June 2011, trade receivables of $20,204 (2010 - $25,563) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

30 to 60 days 16,701 2,750 61 days and above 3,503 22,813

20,204 25,563

Based on the credit history of these other classes, it is expected that these amounts will be received when due. The Company does not hold any collateral in relation to these receivables.

5d Fair value and credit risk

Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above.

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CONSOLIDATED

2011

$ 2010

$

6 OTHER CURRENT ASSETS

Accrued Interest - 13,460 Prepaid joint venture cash calls for exploration and evaluation expenditure 740 1,016,120 Prepayments - 4,882

740 1,034,462 7 FINANCIAL ASSETS Financial assets held for trading

Shares in listed securities - fair value 9,000 131,450

7a Movements in Carrying Amounts

Carrying amount at beginning of the year 131,450 78,451

Additions - 129,120 Disposals (127,000) (181,372) Movement in fair value 4,550 105,251 Carrying amount at end of the year 9,000 131,450

8 EXPLORATION AND EVALUATION EXPENDITURE Capitalised exploration and evaluation expenditure – at cost 5,048,481 2,064,362 Less: allowance for impairment (4,998,481) - Capitalised exploration and evaluation expenditure 50,000 2,064,362 Balance at the beginning of the year 2,064,362 - Exploration and mining expenditure incurred during the year 2,984,119 2,064,362 Impairment (4,998,481) - Balance at the end of the year 50,000 2,064,362

Costs capitalised on areas of interest have been reviewed for impairment factors, such as resources prices, ability to meet expenditure going forward and potential resource downgrades. It is the directors’ opinion that the consolidated enity has ownership, or title to the areas of interests it has capitalised expenditure on and has reasonable expectations that its activities are ongoing, and the values of these tenements have not been impaired.

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NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2011

CONSOLIDATED

2011

$ 2010

$ 9 PLANT AND EQUIPMENT Cost 971,170 960,253 Accumulated depreciation (416,802) (351,624) 554,368 608,629

Movements in Carrying Amounts:

Carrying amount at beginning of the year 608,629 642,935 Additions 10,917 27,878 Disposals - - Depreciation expense (65,178) (62,184)

Carrying amount at end of the year 554,368 608,629

10 TRADE AND OTHER PAYABLES Trade creditors and accruals

187,558

863,596

Payment terms are 30 days from receipt of goods and/or services rendered.

11 BORROWINGS SHORT TERM

Lease liability 30,609 28,123 LONG TERM Lease liability 5,358 35,966 Terms and conditions: The lease liability is unsecured. Interest is charged at is 8.5%.

12 SHORT TERM PROVISIONS

Employee entitlements 79,421 92,698 Movement in provisions for the year is as follows: Consolidated Annual Leave $ Opening balance at 1 July 2010 92,698 Amounts used (13,277) Balance at 30 June 2011 79,421

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CONSOLIDATED

2011

$ 2010

$

13 ISSUED CAPITAL Issued and paid up ordinary shares 29,003,570 27,865,063

13a Movement in fully paid ordinary shares

Number of shares 2011 2010 2011 2010 Ordinary Shares $ $ At 1 July 254,708,687 254,707,873 27,865,063 27,864,982 Share placement 62,206,250 - 1,138,507 - Exercise of options - 814 - 81

At 30 June 316,914,937 254,708,687 29,003,570 27,865,063

13b Terms and Conditions

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up the Company, ordinary shares rank after all other shareholders and creditors and are fully entitled to any proceeds from liquidation. Ordinary shares issued as a result of the exercise of options, will rank equally and on the same terms and conditions as all other shareholders.

13c Capital Management Management controls the capital of the Company in order to maintain a good debt to equity ratio, provide the

shareholders with adequate returns and ensure that the company can fund its operations and continue as a going concern.

The Company’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the Company’s capital by assessing its financial risks and adjusting its capital structure

in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues.

There have been no changes in the strategy adopted by management to control the capital of the Company since the

prior year. The gearing ratios for the year ended 30 June 2011 and 30 June 2010 are as follows: CONSOLIDATED 2011

$ 2010

$

Total borrowings 35,967 64,089

Less cash and cash equivalents (86,160) (2,752,539) Net debt (50,193) (2,688,450) Total equity 1,147,860 5,807,239 Total capital 1,097,667 3,118,789 Gearing ratio (5%) (86%)

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CONSOLIDATED

2011

$ 2010

$

14 RESERVES

Options reserve 622,090 622,090

The options reserve is used to record options issued to shareholders and share-based payments made by the Company.

Transactions between related parties are on normal commercial terms and conditions which are no more favourable than those available to other parties. There were no related party transactions other than those transactions identified above and key management personnel remuneration.

CONSOLIDATED

2011

$ 2010

$ 16 EARNINGS PER SHARE Net loss attributable to members of the Company 5,797,886 438,600

No. No. Weighted average number of ordinary shares outstanding during the year used in calculating basic earnings per share.

282,833,738

254,707,875

16a Basic Earnings per Share

Basic earnings per share is determined by dividing the loss after income tax attributable to members of the Company by the weighted average number of ordinary shares outstanding during the financial period, adjusted for any bonus elements in ordinary shares issued during the year.

16b Diluted Earnings per Share

Diluted earnings per share is the same as basic earnings per share as there were no options on issue which would be potential ordinary shares.

17 AUDITOR’S REMUNERATION

Remuneration of RSM Bird Cameron Partners as auditors of the Company for: - auditing or reviewing of the financial report - taxation services

51,000 19,944

50,000 3,684

70,944 53,684

15 RELATED PARTY TRANSACTIONS

Aggregate amounts of each type of transaction with directors other than directors fees are as follows:

Re-imbursement of rental and variable outgoings expenses for the Company’s principal place of business – Bryant Mclarty

23,032

30,118

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18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Company’s principal financial instruments comprise cash and short-term deposits. The main purpose of these financial instruments is to finance the Company’s operations. The Company has various other

financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Company’s financial instruments are cash flow interest rate risk, liquidity risk and foreign

exchange risk. Other minor risks are either summarised below or disclosed at Note 5 in the case of credit risk and Note 13 in the case of capital risk management. The Board reviews and agrees policies for managing each of these risks.

Cash Flow Interest Rate Risk The Company’s exposure to the risks of changes in market interest rates relates primarily to the Company’s short-term deposits

with a floating interest rate. These financial assets with variable rates expose the Company to cash flow interest rate risk. All other financial assets and liabilities in the form of receivables and payables are non-interest bearing. The Company does not engage in any hedging or derivative transactions to manage interest rate risk.

The following tables set out the carrying amount by maturity of the Company’s exposure to interest rate risk and the effective

weighted average interest rate for each class of these financial instruments. The Company has not entered into any hedging activities to cover interest rate risk. In regard to its interest rate risk, the

Company does not have a formal policy in place to mitigate such risks.

2011

Weighted Average Interest

Rate

Floating Interest

Rate

Fixed Interest Rate

Within 1 Year

Fixed Interest

Rate Within 1-5

Years

Non-Interest Bearing

Total $ $ $ $ $ Financial Assets Cash and cash equivalents 4.10% 86,160 - - - 86,160 Trade and other receivables - - - 750,538 750,538 Other financial assets - - - 9,000 9,000 Total financial assets 86,160 759,538 845,698 Financial liabilities Trade and other payables - - - (187,558) 187,558 Interest bearing liabilities 8.50% - (35,967) - - 35,967 Total financial liabilities - (35,967) - (187,558) 223,525 Net Financial Assets/(Liabilities) 86,160 (35,967) - 93,240 143,433

2010

Weighted Average Interest

Rate

Floating Interest

Rate

Fixed Interest Rate

Within 1 Year

Fixed Interest

Rate Within 1-5

Years

Non-Interest Bearing

Total $ $ $ $ $ Financial Assets Cash and cash equivalents 5.0% 2,752,539 - - - 2,752,539 Trade and other receivables - - - 236,180 236,180 Other financial assets - - - 131,450 131,450 Total financial assets 2,752,539 - - 367,630 3,120,169 Financial liabilities Trade and other payables - - - (863,596) (863,596) Interest bearing liabilities 8.50% - (28,123) (35,966) - (64,089) Total financial liabilities - (28,123) (35,966) (863,596) (927,685) Net Financial Assets/(Liabilities) 2,752,539 (28,123) (35,966) (495,966) 2,192,484

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18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.) Interest rate sensitivity analysis At 30 June 2011, if interest rates had changed by 10% during the entire year with all other variables held constant, profit for

the year and equity would have been $8,616 (2010:$17,823) lower/higher, mainly as a result of lower/higher interest income from cash and cash equivalents.

Based on the sensitivity analysis only interest revenue from variable rate deposits and cash balances are impacted resulting

in a decrease or increase in overall income. Liquidity risk

The Company manages liquidity risk by maintaining sufficient cash reserves and marketable securities and through the continuous monitoring of budgeted and actual cash flows.

CONSOLIDATED

2011

$ 2010

$

Contracted maturities Payables - less than 30 days 187,558 863,596

Price risk

The Company is not exposed to price risk. Foreign exchange risk

The Company is exposed to foreign exchange rate arising from various currency exposures. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Company’s functional currency.

The Company’s exposure to foreign currency risk at the reporting date was as follows:

2011 2010 USD EUR GBP USD EUR GBP $ $ $ $ $ $ Trade receivables 14,160 1,680 - 17,651 5,890 - Trade payables 5,644 - 2,000 1,391 - -

Foreign currency risk sensitivity analysis At 30 June, the effect on profit and equity as a result of changes in the value of the Australian Dollar to the foreign currencies, with all other variables remaining constant is as follows:

2011 2010 Change in profit and equity with a +/- 10%

in AUD to Change in profit and equity with a +/- 10%

in AUD to USD EUR GBP USD EUR GBP $ $ $ $ $ $ Trade receivables 1,515 124 - 1,512 413 - Trade payables 604 - 129 119 - -

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18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.)

Net fair values For assets and other liabilities the net fair value approximates their carrying value. The Company have no financial assets where the carrying amount exceeds net fair values at reporting date. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of comprehensive income and in the notes to the financial statements.

Financial instruments at fair value

The financial instruments recognised at fair value in the statement of financial position have been analysed and classified using the fair value hierarchy reflecting the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following levels: - quoted prices in active markets for identical assets and liabilities (Level 1); - inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly (as

prices) or indirectly (derived from prices) (Level 2); and - inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

LEVEL 1 LEVEL 2 LEVEL 3 TOTAL

2011 Financial assets held for trading 9,000 - - 9,000 9,000 - - 9,000 2010 Financial assets held for trading 131,450 - - 131,450 131,450 - - 131,450

19 INVESTMENT IN CONTROLLED ENTITIES

EQUITY HOLDING EQUITY HOLDING

COUNTRY OF

CORPORATION CLASS OF SHARES 2011

% 2010

% Parent Entity: PharmAust Limited Australia - - - Name of Controlled Entity: Epichem Pty Ltd Australia Ordinary 100 100 ACN 143 913 026 Pty Ltd Australia Ordinary 100 100

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20 NOTES TO THE CASH FLOW STATEMENT OF CASH FLOWS 20a Reconciliation of Cash CONSOLIDATED

2011

$ 2010

$

Cash at bank 86,160 2,752,539 20b Reconciliation of net cash used in operating activities to loss after

income tax

Loss after income tax (5,797,886) (438,600) Depreciation 65,178 62,184 Impairment on exploration expenditure 4,998,481 - Revaluation on non-current assets - (47,000) Unrealised gain on financial assets (4,550) Profit on sale of financial assets (1,292) (58,251) Movement in assets and liabilities:

Receivables (14,987) 112,351 Other assets (3,007) (18,342) Payables (676,038) (117,817)

Provisions (13,277) 30,745

Net cash used in operating activities (1,447,378) (474,730)

21 OPTIONS Movement in share options Exercise

price Expiry date

Balance at beginning

of year

Granted during the

year

Exercised during the

year

Expired or forfeited

during the year

Balance at end of year

Options exercisable

at end of year

Number Number Number Number Number Number 2011 year Listed options $0.10 31/03/12 246,457,060 24,000,000 - - 270,457,060 270,457,060 246,457,060 24,000,000 - - 270,457,060 270,457,060

Exercise

price Expiry date

Balance at beginning

of year

Granted during the

year

Exercised during the

year

Expired or forfeited

during the year

Balance at end of year

Options exercisable

at end of year

Number Number Number Number Number Number 2010 year Unlisted options $0.15 23/04/10 8,250,000 - - (8,250,000) - - Listed options $0.10 31/03/12 - 246,457,874 (814) - 246,457,060 246,457,060 8,250,000 246,457,874 (814) (8,250,000) 246,457,060 246,457,060

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22 KEY MANAGEMENT PERSONNEL 22a Directors and other key management personnel

Names and positions held of consolidated entity key management personnel in office at any time during the financial yearare: Person Position Bryant McLarty Executive Director and Chairman Henry Gulev Non-Executive Director Sam Wright Non- Executive Director and Company Secretary Wayne Best Managing Director – Epichem Pty Ltd John Horton Director – Epichem Pty Ltd Colette Sims Director – Epichem Pty Ltd

22b Remuneration of Key Management Personnel Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to eachmember of the consolidated entity’s key management personnel for the year ended 30 June 2011. The totals of remuneration paid to key management personnel of the consolidated entity during the year are as follows: CONSOLIDATED

2011

$ 2010

$

Short term employee benefits 452,527 421,923 Post employment benefits 28,577 39,908 481,104 461,831 22c Option Holdings by Key Management Personnel

2011 - Number Balance 1 July 2010

Granted as Compen-

sation

Options Exercised

Net Change Other*

Balance 30 June 11

Total Vested

Total Exercisable

Total Unexercisable

Bryant Mclarty 3,275,274 - - 7,236,750 10,512,024 10,512,024 10,512,024 - Sam Wright 875,000 - - 500,000 375,000 1,375,000 1,375,000 - Wayne Best 1,187,145 - - - 1,187,145 1,187,145 1,187,145 -

2010 - Number Balance 1 July 09

Granted as Compen-

sation

Options Exercised

Net Change Other*

Balance 30 June 10

Total Vested

Total Exercisable

Total Unexercisable

Bryant Mclarty - - - 3,275,274 3,275,274 3,275,274 3,275,274 - Sam Wright - - - 875,000 875,000 875,000 875,000 - Wayne Best - - - 1,187,145 1,187,145 1,187,145 1,187,145 - No other key management personnel held options in the Company. The net change other column above includes those options that have been forfeited by holders as well as options issued during the year.

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22 KEY MANAGEMENT PERSONNEL (CONT.) 22d Shareholdings by Key Management Personnel

2011 - Number Balance

1 July 2010 Received as

Compensation Net

Change Other*

Balance 30 June 2011

Bryant McLarty 7,661,564 - (643,445) 7,018,119 Wayne Best 2,374,290 - - 2,374,290 Sam Wright 1,750,000 - 4,875,000 6,625,000 John Horton 25,000 - - 25,000 Colette Sims 812,500 - (812,500) -

2010 - Number Balance

1 July 2009 Received as

Compensation Net

Change Other*

Balance 30 June 2010

Bryant McLarty 6,550,548 - 1,111,016 7,661,564 Wayne Best 2,374,290 - - 2,374,290 Sam Wright 1,750,000 - - 1,750,000 John Horton 25,000 - - 25,000 Colette Sims 812,500 - - 812,500 No other key management personnel held shares in the Company. * Net change other refers to shares purchased or sold during the financial year.

23 COMMITMENTS 23a Exploration expenditure commitments

In order to maintain current rights of tenure to exploration tenements, the Company will be required to outlay the following amounts in respect of minimum tenement expenditure requirements and lease rentals. This non-cancellable obligation is not provided for in the financial statements and is payable as follows:

CONSOLIDATED

2011

$ 2010

$ Not later than one year - 1,589,566

23b Finance lease commitments

Payable – minimum lease payments - Not later than 12 months 32,491 32,491 - Between 12 months and 5 years 5,416 37,907 Minimum lease payments 37,907 70,398 Less future finance charges (1,940) (6,309) 35,967 64,089

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24 SEGMENT REPORTING Segment Information Identification of reportable segments

The Company has identified its operating segments based on the internal reports that are reviewed and used by the Directors(chief operating decision makers) in assessing performance and determining the allocation of resources. Descriptions of segments i. Corporate The corporate segment covers all the corporate overhead expenses. ii. Exploration The exploration segment relates to the consolidated entity’s operations for the exploration of tenements for minerals,

oil and gas. iii. Pharmaceutical The pharmaceutical segment provides products and services in synthetic and medicinal chemistry to the drug

discovery and pharmaceutical industries. Basis of accounting for purposes of reporting by operating segments a. Accounting policies adopted All amounts reported to the Directors, being the chief decision makers with respect to operating segments, are

determined in accordance with accounting policies that are consistent to those adopted in these financial statements.

b. Intersegment transactions There are no intersegment sales and purchase within the consolidated entity.

Intersegment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs.

c. Segment assets Where an asset is used across multiple segments, the asset is allocated to the segment that receives majority

economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location.

d. Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the

operations of the segment.

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24 SEGMENT REPORTING (Cont.) The consolidated entity operates in three business segments as disclosed below:

i) Segment Performance

Consolidated 2011

Corporate

Exploration

Pharmaceutical

Total $ $ $ $ Revenue External sales - - 1,551,673 1,551,673 Other external revenue 36,926 - 7,499 44,425 Inter-segment sales - - - - Total segment revenue 36,926 - 1,559,172 1,596,098 Inter-segment elimination - Total revenue per statement of comprehensive income

1,596,098

Results Segment result from continuing operations before tax (670,568) (4,998,481) (128,837) (5,797,886)

2010 Revenue External sales - - 1,629,715 1,629,715 Other external revenue 305,069 - 6,557 311,626 Inter-segment sales - - - - Total segment revenue 305,069 - 1,636,272 1,941,341 Inter-segment elimination - Total revenue per statement of comprehensive income

1,941,341

Results Segment result from continuing operations before tax (461,455) - (32,165) (493,620)

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24 SEGMENT REPORTING (Cont.)

ii) Segment assets and liabilities

Consolidated Corporate

Exploration

Pharmaceutical

Total

$ $ $ $ 2011 Segment assets Segment assets 592,434 50,000 808,372 1,450,806 Total assets of the consolidated entity:

1,450,806

Capital expenditure during the year

-

2,984,119

10,917

2,995,036

Segment liabilities Segment operating liabilities (36,789) - (266,157) (302,946) Total liabilities of the consolidated entity:

(302,946)

2010 Segment assets Segment operating assets 3,842,347 2,064,362 920,913 6,827,622 Total assets of the consolidated entity:

6,827,622

Capital expenditure during the year

8,385

-

19,494

27,879

Segment liabilities Segment operating liabilities (770,541) - (249,842) (1,020,383) Total liabilities of the consolidated entity:

(1,020,383)

ii) Revenue by geographical region

Consolidated 2011

$ 2010

$ Revenue by geographical region Revenue attributable to external customers is disclosed below, based on the location of the external customer:

Switzerland 1,094,567 950,000 Australia 220,565 459,125 Others 236,541 220,590 Total revenue 1,551,673 1,629,715 Assets by geographical region The location of segment assets by geographical location of the assets is disclosed below:

Australia 1,400,806 4,763,260 Italy/Tunisia 50,000 2,064,362 Total assets 1,450,806 6,827,622 Major customers The consolidated entity has a number or customers to which it provides both products and services. The consolidated entity supplies a single external customer within the pharmaceutical segment who accounts for 62% of external revenue (2010:58%). The next most significant customer accounts for less than 10% of external revenue.

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25 CONTINGENT LIABILITIES There are no contingent liabilities at the date of this report.

26 EVENTS AFTER THE REPORTING PERIOD

On 12 July 2011, shareholders approved a series of resolutions to enable the Company to proceed to complete the conditions precedent and subsequently complete the acquisition of Pela Resources Pty Ltd. The consideration for the acquisition was 150,000,000 shares in the Company.

27 PARENT INFORMATION

2011

$ 2010

$

Statement of Financial Position Assets Current assets 105,441 3,828,796 Non-current assets 536,973 2,077,913 Total assets 642,414 5,906,709 Liabilities Current liabilities 36,789 770,541 Total liabilities 36,789 770,541 Equity Issued capital 29,003,570 27,865,063 Reserves 622,090 622,090 Accumulated losses (29,020,035) (23,350,985) Total equity 605,625 5,136,168 Statement of comprehensive income Loss for the year (5,669,049) (406,435) Other comprehensive income - (55,020) Total comprehensive income (5,669,049) (461,455)

Guarantees PharmAust Limited has not entered into any guarantees in the current or previous financial year, in relation to the debts of its subsidiaries. Other Commitments and Contingencies PharmAust Limited has no commitments to acquire property, plant and equipment and has no contingent liabilities.

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28 NEW ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE At the date of this financial report the following accounting standards, which may impact the consolidated entity in the period of initial application, have been issued but are not yet effective:

Reference Title Summary Application date (financial

years beginning)

AASB 9 Financial Instruments

Replaces the requirements of AASB 139 for the classification and measurement of financial assets. This is the result of the first part of Phase 1 of the IASB’s project to replace IAS 39.

1 January 2013

AASB 124 Related Party Disclosures

Revised standard. The definition of a related party is simplified to clarify its intended meaning and eliminate inconsistencies from the application of the definition

1 January 2011

The consolidated entity has decided not to early adopt any of the above accounting standards.

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SHAREHOLDER INFORMATION Additional information required by the Australian Stock Exchange Limited Listing Rules, and not disclosed elsewhere in this report. SHAREHOLDINGS At the date of this report two shareholders had lodged substantial shareholder notices with the Company.

a) Mr Gerald James Van Blommestein & Mrs Gillian Van Blommestein is a substantial shareholder holding a relevant interest in 28,805,269 shares representing 11.31% of the voting power.

b) Mr Peter Vassileff is a substantial shareholder holding a relevant interest in 50,008,069 shares representing 19.65% of the voting power.

CLASS OF SHARES AND VOTING RIGHTS The voting rights attached to the Fully Paid Ordinary shares of the Company are:

(a) at a meeting of members or classes of members each member entitled to vote may vote in person or by proxy or by attorney; and

(b) on a show of hands every person present who is a member has one vote, and on a poll every person present in person or by proxy or attorney has one vote for each ordinary share held.

There are no voting rights attached to any Options on issue. ORDINARY FULLY PAID SHARES (TOTAL) As of 31 Jul 2011 Range of Units Snapshot Composition : ORD

Range Total holders Units % of Issued Capital

1 - 1,000 34 9,494 0.00

1,001 - 5,000 71 268,347 0.08

5,001 - 10,000 38 320,340 0.10

10,001 - 100,000 388 18,895,321 5.96

100,001 - 9,999,999,999 291 297,421,435 93.85

Rounding 0.01

Total 822 316,914,937 100.00

Unmarketable Parcels

Minimum Parcel Size

Holders Units

Minimum $ 500.00 parcel at $ 0.03 per unit 16667 179 1087213

LISTED OPTIONS EXPIRE 31/03/12 @ $0.10 As of 31 Jul 2011 Range of Units Snapshot Composition : OPT

Range Total holders Units % of Issued Capital

1 - 1,000 12 3,505 0.00

1,001 - 5,000 23 76,913 0.03

5,001 - 10,000 13 97,163 0.04

10,001 - 100,000 133 5,635,921 2.08

100,001 - 9,999,999,999 191 264,643,558 97.85

Rounding 0.00

Total 372 270,457,060 100.00

Unmarketable Parcels

Minimum Parcel Size

Holders Units

Minimum $ 500.00 parcel at $ 0.0030 per unit

166667 206 9106120

There is no current on-market buy back taking place.

During the reporting period the Company used its cash and assets in a manner consistent with its business objectives.

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SHAREHOLDER INFORMATION (Cont.)

TWENTY LARGEST SHAREHOLDERS (as at 30 Aug 2011)

Rank Name Units % of Units

1. GORAN MOMIRCEVSKI 37,500,000 8.03 2. NEWCO 6014 PTY LTD 37,500,000 8.03

3. GREGORY ROLLAND CUNNOLD + LARA CHERYL GROVES 37,500,000 8.03

4. TREVOR ENNIS JOHN 37,500,000 8.03

5. MR GRAHAM JAMES DARCY + MRS LYNNE CHRISTINE DARCY 23,000,000 4.93

6. MR GERALD JAMES VAN BLOMMESTEIN + MRS GILLIAN VAN BLOMMESTEIN 21,801,428 4.67

7. SILKTREE INVESTMENTS PTY LTD 10,500,000 2.25 8. MS NICOLE GALLIN + MR KYLE HAYNES 9,900,000 2.12 9. JP MORGAN NOMINEES AUSTRALIA LIMITED 8,666,514 1.86 10. SILKTREE INVESTMENTS PTY LTD 7,910,158 1.69 11. MRS PATRICIA ANNE LANCASTER 6,733,673 1.44 12. MR BRYANT JAMES MCLARTY 6,550,548 1.40 13. GEBA PTY LTD 5,646,609 1.21 14. MR RUPERT NIGEL CHEONG 5,520,000 1.18 15. MR PETER HOWELLS 4,723,810 1.01 16. URIO INVESTMENTS PTY LIMITED 4,311,089 0.92 17. AS & JR LIBBIS PTY LIMITED 4,195,000 0.90

18. MR ERIC NEIL BRADFIELD + MRS SHIRLEY ANN BRADFIELD 4,138,649 0.89

19. NUMBER 7 INVESTMENTS PTY LTD 4,000,000 0.86 20. SAYERS INVESTMENTS (ACT) PTY LIMITED 3,875,000 0.83

Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL) 281,472,478 60.28

TWENTY LARGEST OPTIONHOLDERS (as at 30 Aug 2011)

Rank Name Units % of Units

1. MR GRAHAM JAMES DARCY + MRS LYNNE CHRISTINE DARCY 15,000,000 5.55

2. GEBA PTY LTD 13,898,164 5.14

3. MR GERALD JAMES VAN BLOMMESTEIN + MRS GILLIAN VAN BLOMMESTEIN 11,535,135 4.27

4. EQUITAS NOMINEES PTY LIMITED 10,550,000 3.90 5. MR ROBERT FRANCIS CLAYTON 8,000,000 2.96 6. SILKTREE INVESTMENTS PTY LTD 8,000,000 2.96 7. MAC EQUITY PARTNERS PTY LTD 7,486,750 2.77 8. STRAIGHT LINES CONSULTANCY PTY LTD 6,000,000 2.22 9. MR PETER VASSILEFF 6,000,000 2.22 10. WIMALEX PTY LTD 6,000,000 2.22 11. NICSAN INVESTMENTS PTY LTD 5,660,000 2.09

12. MR MARK WAYNE BRADFIELD + MRS ABBY BRADFIELD 5,500,000 2.03

13. SILKTREE INVESTMENTS PTY LTD 5,250,000 1.94

14. AUSTRALIAN HISTORICAL INVESTMENTS PTY LTD 5,000,225 1.85

15. ZACHARIAH INVESTMENTS PTY LTD 4,200,000 1.55 16. MR RUPERT NIGEL CHEONG 4,000,000 1.48 17. NUMBER 7 INVESTMENTS PTY LTD 4,000,000 1.48

18. SILKTREE INVESTMENTS PTY LTD <PETER VASSILEFF SUPER A/C> 3,955,079 1.46

19. LAWRENCE CROWE CONSULTING PTY LTD 3,892,675 1.44 20. MR COLIN THOMAS GORDON 3,625,000 1.34

Totals: Top 20 holders of LISTED OPTIONS EXPIRE 31/03/12 @ $0.10 136,928,028 50.63

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